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American families are all too familiar with the story: just when they thought they had achieved the dream of owning their own home, abuses in the financial and mortgage sector came back to haunt them and sent them spiralling into foreclosure – often through no fault of their own. Countless other families are still struggling to keep their underwater mortgages today.
That is why a historic agreement announced today could not come any sooner. Today the federal government and state attorneys generals for 49 states and the District of Columbia reached a $25 billion agreement with the nation’s five largest mortgage servicers. As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans.
“No compensation, no amount of money, no measure of justice is enough to make it right for a family who’s had their piece of the American Dream wrongly taken from them,” said President Barack Obama. “And no action, no matter how meaningful, is going to, by itself, entirely heal the housing market. But this settlement is a start.”
Besides offering real financial relief to homeowners, the agreement will establish significant new homeowner protections so that unacceptable abuses of the past that worsened the housing crisis never repeat themselves. These abuses included: “robo-signing” of foreclosures, deceptive practices in loan modifications; failures to offer alternatives to foreclosure for borrowers with federally insured mortgages, and filing improper documentation in federal bankruptcy court.
“This historic settlement will provide immediate relief to homeowners – forcing banks to reduce the principal balance on many loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers,” said HUD Secretary Donovan, adding that: “Banks must follow the laws. Any bank that hasn’t done so should be held accountable and should take prompt action to correct its mistakes. And it will not end with this settlement.”
The settlement came about through a joint federal-state group that includes the Department of Justice, HUD, the HUD Office of the Inspector General and state attorneys general who entered into the agreement with the nation’s five largest mortgage servicers: Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc., and Ally Financial Inc. (formerly GMAC).
Some specifics of the broad agreement include:
- The servicers are required to collectively dedicate $20 billion toward various forms of financial relief to borrowers.
- At least $10 billion will go toward reducing the principal on loans for borrowers who, as of the date of the settlement, are either delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth.
- At least $3 billion will go toward refinancing loans for borrowers who are current on their mortgages but who owe more on their mortgage than their homes are worth. Borrowers who meet basic criteria will be eligible for the refinancing, which will reduce interest rates for borrowers who are currently paying much higher rates or whose adjustable rate mortgages are due to soon rise to much higher rates.
- Up to $7 billion will go toward other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance, benefits for service members who are forced to sell their home at a loss as a result of a Permanent Change in Station order, and other programs. Because servicers will receive only partial credit for every dollar spent on some of the required activities, the settlement will provide direct benefits to borrowers in excess of $20 billion.
- In addition to the $20 billion in financial relief for borrowers, the agreement requires the servicers to pay $5 billion in cash to the federal and state governments.
- $1.5 billion of this payment will be used to establish a Borrower Payment Fund to provide cash payments to borrowers whose homes were sold or taken in foreclosure between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria.
- The remaining $3.5 billion of the $5 billion payment will go to state and federal governments to be used to repay public funds lost as a result of servicer misconduct and to fund housing counselors, legal aid and other similar public programs determined by the state attorneys general.
For more information about the mortgage servicing settlement, go to www.NationalMortgageSettlement.com. To find your state attorney general’s website, go to www.NAAG.org and click on “The Attorneys General.”